Consider a representative firm with the total costs of TC=16+Q^2 (and marginal costs of 2Q, MC=2Q)...

Consider a representative firm with the total costs of TC=16+Q^2 (and marginal costs of 2Q, MC=2Q) . The market demand curve is given by P=36-1/2Q and the starting market price is $18

1. Graph the starting scenario using comparative statistics

2. Why is this not a long run equilibrium?

3. What happens in order to transition to the long run?

4. Graph the long run equilibrium using comparative statistics

5. How many firms are in the market in the long run?

Solutions

Expert Solution

In long run equilibrium, there is no economic profit. This is because, more firms enter the market shifting the supply curve to the right, thereby lowering the prices.

The price is determined where the Average Cost is minimum or Average cost is equal to the Marginal Cost.

Rahul Sunny answered 1 week ago

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